Caboche v Ramsay
[1993] FCA 611
•03 SEPTEMBER 1993
ALAN DOUGLAS BURLOCK
Ex parte: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA and
BARRY KEITH TAYLOR (As Trustee of the Deed of Arrangement of Alan Douglas
Burlock)
No. VX196 of 1992
FED No. 611
Number of pages - 19
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
GENERAL DIVISION
OLNEY J
CATCHWORDS
Bankruptcy - deed of arrangement pursuant to Part X - application to declare deed void - standing of applicant to bring application.
Bankruptcy - deed of arrangement - application to declare deed void on ground that it had not been entered into in accordance with Part X - absence of trustee's opinion in his report pursuant to s 189A.
Bankruptcy Act, ss 81, 187, 188, 189A, 189B, 194, 195, 222, 236
Income Tax Regulations, Reg 67
Income Tax Assessment Act, s 207
Beard v Prestige Baking Industries Pty Ltd 36 ALR 307
HEARING
MELBOURNE, 16, 17 and 20 August 1993
#DATE 3:9:1993
Mr D. Meagher QC and Mr M. Crennan (instructed by Australian Government Solicitor appeared for the applicant).
Mr G. Beaumont QC and Ms J. Davies (instructed by D.E. Phillips) appeared for the debtor.
The trustee did not appear.
ORDER
THE COURT DECLARES THAT:
The deed of arrangement executed by the debtor on 7 June 1992 is void on the ground that it was not entered into in accordance with Part X of the Bankruptcy Act.
AND ORDERS THAT:
1. Except as to paragraph 1, the amended application filed on 3 August 1993 be dismissed.
2. There be liberty to apply on the question of costs.
Note: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.
JUDGE1
BACKGROUND
OLNEY J On 18 May 1992 Alan Douglas Burlock (the debtor) signed an authority pursuant to s 188 of the Bankruptcy Act (the Act) authorising Barry Keith Taylor (Taylor), a registered trustee, to call a meeting of his creditors and to take over the control of his property. On the same day Taylor consented in writing to exercise the powers conferred by the authority.
In accordance with s 188(2)(c) the debtor gave to Taylor a statement of his affairs and a statement indicating how he proposed that his affairs be dealt with under Part X of the Act. The statement of affairs is dated 18 May 1992 as is the debtor's statement pursuant to s 188(2)(c)(ii). The latter statement is in the following form:
STATEMENT OF DEBTOR PURSUANT TO SECTION 188(2)(c) RE: ALAN DOUGLAS BURLOCK I, ALAN DOUGLAS BURLOCK of 19 White Lodge Court Donvale, Victoria, 3111, whose occupation is Consultant in the State of Victoria propose to offer my creditors a Deed of Arrangement pursuant to Part X of the Bankruptcy Act 1966.
The terms of the Deed of Arrangement would be as follows:
1. That I covenant to pay to my Trustee the lump sum of $50,000 payable within 7 days of acceptance of the Deed of Arrangement by Creditors.
2. That I obtain Releases from:
(1) Helen Burlock
20 White Lodge Court
DONVALE VIC 3111
(2) Ron Burlock
28 Sweetland Avenue
MOOROOLBARK VIC 3138
(3) A Chizzoniti
42 Hedderwick Street
BALWYN VIC 3103
(4) Ken Dungey
6 Merry Street
RINGWOOD EAST VIC 3032
(5) G. Gym (Highpoint) Pty Ltd
Units 14 and 15
Highpoint Homemaker Centre
MARIBYRNONG VIC 3032
(6) Rudy Keleman
17th Floor
193 Domain Road
SOUTH YARRA VIC 3141
(7) Robert A Kingdon
267 Maroondah Highway
RINGWOOD VIC 3134
(8) M, M and R
Solicitors
22B Maroondah Highway
RINGWOOD VIC 3134
(9) Partnership Pacific Ltd
360 Collins Street
MELBOURNE VIC 3000
(10) Carolyne Shearer
Domain Park Apartments
Cnr Domain and Park Street
SOUTH YARRA VIC 3141
(11) Sitcom Pty Ltd
267 Maroondah Highway
RINGWOOD VIC 3134
(12) Sizzlers International Pty Ltd
267 Maroondah Highway
RINGWOOD VIC 3134
(13) Sterow Pty Ltd
PO Box 289
CANTERBURY VIC 3126
(14) J M Thompson
Wintles Road
LEONGATHA SOUTH VIC 3953
(15) Kay Tutton
7 Rumoly Drive
FOREST HILL VIC 3131
3. That I assign to my Trustee any monies received by me from legal action against:
1) Cynthia Davis re: vehicle accident (approx $1,906 less legal costs)
2) GRE Insurance Co. re: claim for carpet damage (approx $12,500 legal costs)
DATED this 18th day of MAY, 1992.
(Signed).A.D. Burlock.... ALAN DOUGLAS BURLOCK
In his capacity as controlling trustee Taylor prepared a report pursuant to s 189(A) of the Act which is dated 18 May 1992 and which was filed on 20 May 1992.
A meeting of the debtor's creditors was called by Taylor and held on 5 June 1992. The debtor attended the meeting. The meeting passed a special resolution requiring the debtor to execute a deed of arrangement pursuant to Part X of the Act containing covenants on his part in terms identical to his statement made pursuant to s 188(2)(c)(ii) of the Act. The deed of arrangement (the deed) was executed by the debtor on 5 June 1992. Taylor was appointed trustee of the deed and duly consented to act as such.
THE APPLICATION
5. On 15 July 1992 the applicant filed an application in this Court seeking an order pursuant to s 236 of the Act terminating the deed and a sequestration order pursuant to s 52 of the Act. The application has since been amended, by leave, to seek the following orders upon the grounds set out hereunder:
1. An order pursuant to section 222(2) of the Bankruptcy Act 1966 ("the Act") declaring that the arrangement the subject of a special resolution passed at a meeting of the creditors of Alan Douglas Burlock on 5 June 1992 is void.
2. An order pursuant to section 222(4)(b) of the Act declaring that the arrangement the subject of a special resolution passed at a meeting of the creditors of Alan Douglas Burlock on 5 June 1992 is void.
3. An order pursuant to section 236(1)(a) of the Act declaring that the arrangement the subject of a special resolution passed at a meeting of the creditors of Alan Douglas Burlock on 5 June 1992 be terminated.
4. An order pursuant to section 236(1)(c) of the Act that the arrangement the subject of a special resolution passed at a meeting of the creditors of Alan Douglas Burlock on 5 June 1992 be terminated.
5. A Sequestration Order pursuant to section 52 of the Act.
6. Such other Orders as the Court deems fit.
The grounds relied upon in relation to the relief sought as set out above are:
1. In respect of the relief sought by paragraph 1 above the failure of the Trustee to state whether or not in his opinion it would be in the interest of the debtor's creditors to deal under Part X of the Act with the debtor's affairs in the manner proposed by the debtor as required by section 189A of the Act.
2. In relation to the relief sought by paragraph 2 above the Applicant will rely on the existence of a false statement in Part VI of the Debtor's Statement of Affairs filed herein as to the sums to be recovered in certain legal actions as therein set out.
3. As to the relief sought by paragraph 3 above the fact contrary to the terms of the Deed executed on 5 June 1992 the debtor has not procured releases from the creditors listed in the proposal to the creditors and the Deed.
4. In relation to the relief set out in paragraph 4 above the fact that:
(a) the arrangement will produce a dividend which will be either non-existent or of insignificant quantity; and
(b) the fact that in all the circumstances of this case the interests of the public and the creditors are better protected by a sequestration order against the estate of the debtor in that inter alia this will enable the application of Part VI, Division 4B of the Act and the application of section 229 of the Corporations Act 1989.
The order granting the applicant leave to amend the application required the applicant to file and serve a statement of particulars of paragraphs 2, 3 and 4(b) of the above grounds, annexing thereto a copy of each document referred to in such particulars. Particulars were duly filed as follows:
1. Particulars of Ground 2:
The Debtor included an incorrect and material particular in the Statement of Affairs which he provided under sub-section 188(2) of the Bankruptcy Act ("the Act") in that in Part VI of the said statement he said that a legal action by himself against Cynthia Davis would yield $1,906.00 and that legal action against GRE Insurance would yield approximately $12,500.00. He made no reference to a counter claim or circumstances permitting a counterclaim in either case. In the Trustee's accounts provided to the Court by reason of section 211 of the Act and dated 22 January 1993 it was disclosed in paragraph 3 thereof that the amounts received in settlement of the respective legal actions were, in the case of the action against Cynthia David $259.00, and in the case of the action against GRE Insurance $2,000.00 and that in the case of the second legal action the reduction was primarily due to the counterclaim being advanced by the insurance company.
2. Particulars of Ground 3
It was a term of the Deed of Arrangement herein that the Debtor would procure from the following creditors releases from their claims on him:-
(1) Helen Burlock
(2) Ron Burlock
(3) A. Chizzoniti
(4) Ken Dungey
(5) G. Gym (Highpoint) Pty Ltd
(6) Rudy Keleman
(7) Robert A. Kingdon
(8) M, M and R, Solicitors
(9) Partnership Pacific Ltd
(10) Carolyne Shearer
(11) Sitcom Pty. Ltd.
(12) Sizzlers International Pty. Ltd.
(13) Sterow Pty. Ltd.
(14) J.M. Thompson
(15) Kay Tutton.
The Debtor has failed to carry out or comply with the provision of the Deed of Arrangement in that he has not obtained releases from the said creditors, in that the only agreement he procured from each creditor was in the form and to the effect of that set out in documents entitled "Release" copies of which are attached hereto.
3. Particulars of Ground 4(b)
The complexity of the debtor's affairs warrants an examination of them in the interests of the creditors. The applicant relies upon:
(a) the magnitude of the debt compared to the value of assets disclosed in the Debtor's Statement of Affairs.
(b) the inability and consequential failure of the Trustee to make a recommendation in compliance with the provisions of section 189A prior to the creditors considering a proposal to enter into a deed of arrangement.
(c) the worthlessness to the creditors of a contribution of $50,000 plus the proceeds of two causes of action said to be valued at $14,406 but in fact of a value of $2,259, thus providing a total of no more than $52,259 to be distributed after, and only after, the payment of the costs of the Trustee which in this instance were greater than $31,000.
(d) The deception practised upon the creditors by the Debtor in his application for approval of a deed of arrangement in that:
(i) he did not disclose the facts and circumstances by which the claims made in the legal actions would be reduced from an amount receivable of $14,406 to $2,259.
(ii) he did not disclose that the "releases" he proposed to procure, and later did procure, from the specified creditors were not absolute releases of the debts due, but were merely undertakings to not lodge a proof of debt until such time as the unsecured creditors has been paid 100 cents in the dollar.
(e) there is a web of companies, a comprehensive identification of which, and the nature and extent of the Debtor's interest (and the value of that interest) in which, is not capable of being ascertained unless and until there has been a compulsory examination of the Debtor and of others associated therewith pursuant to the provisions of the Bankruptcy Act 1966 relating to bankrupts. The applicant refers to and relies upon the fact and circumstance that in many of these companies it appears that the Debtor's wife and/or his step-daughter hold positions as directors, and asserts that such fact and circumstance warrants investigation to determine whether they do so for and on his behalf, and comply with his directions in their management and in the disposition of their assets.
(f) the apparent ability of the Debtor to procure from Sitcom Pty Ltd the sum of $50,000 in purported satisfaction of the deed of arrangement in circumstances where the Debtor denies any right of control over or entitlement to the assets of that company.
(g) there are allegations that the Debtor possessed a safe deposit box which contained at relevant times cash in an amount of $200,000, which allegation cannot be fully and satisfactorily examined other than pursuant to the provisions of the Bankruptcy Act 1966 relating to bankrupts.
(h) the dealings between the Debtor and those creditors from whom he undertook to procure releases, and in particular, Partnership Pacific, and the circumstances in which the said releases (in the aforesaid terms) were offered or procured warrant examination, and can be examined in a satisfactory manner only by a compulsory examination of the Debtor and of others associated therewith pursuant to the provisions of the Bankruptcy Act 1966 relating to bankrupts.
(i) the acceptance by the Debtor of the Trustee's proposal and his willingness to submit himself to an examination pursuant to s.81 of the Bankruptcy Act 1966 notwithstanding the execution of the deed of arrangement constituted an admission by him that his affairs were of such complexity, and were attended by such doubt as to honest and full disclosure of them by the debtor, that an examination of his affairs by such processes was in the interests of the creditors, and consequently, that the deed of arrangement should be set aside.
The applicant relies upon the several documents being the minutes of meetings of creditors, the transcript of those meetings, and the reports of the Trustee.
(j) Part VI Division 4B of the Act is relevant in that:
(i) the allegation made in the transcript of the creditors' meeting herein, held on 5 June 1992 at pp 18 and following thereof, a copy of which is attached hereto, that the Debtor's income, if it amounts to $48,000.00 would leave a smaller dividend available than the $50,000.00 promised under the Deed is not sustainable having regard to the significant part of the $50,000.00 dissipated by the Trustee as disclosed in the said Trustee's accounts attached hereto.
(ii) section 139U of the Act provides that the Official Trustee may require a bankrupt to provide evidence of income.
(iii) the definition of income in section 139L of the Act by sub-paragraph (e) includes the value of the benefit that is or if it were provided by an employer would be a fringe benefit. There is evidence in the transcript of creditors' meetings in this Part X arrangement that the Debtor is and has been the recipient of benefits of the kind described in the sub-paragraph.
(k) section 229 of the Corporations Act 1989 prohibits a person who is an insolvent under administration from being engaged in the management of a corporation without the leave of the Court. Section 9 of the Corporations Act 1989 defines an insolvent under administration as inter alia "a person who has executed a Deed of Arrangement under Part X of the Bankruptcy Act . . . where the terms of the Deed have not been fully complied with". It is in the public interest that the Debtor whose indebtedness arises largely from personal guarantees in relation to companies in the management of which he has been concerned or in respect of which he has acquired benefits should be subject to the provisions of the Corporations Act and only entitled to be engaged in the management of further companies under the supervision of the Court.
Taylor did not take any part in the proceedings. The debtor gave notice of his intention to appear at the hearing of the application and to oppose same on the grounds that:
1. The terms of the deed of arrangement are reasonable.
2. The trustee properly investigated the (debtor's) financial affairs.
3. The Deputy Commissioner of Taxation is not a creditor of the debtor for the purposes of the Bankruptcy Act and has no standing to bring the application.
THE MEETING OF CREDITORS AND SUBSEQUENT ACTION
9. At the meeting of creditors on 5 June 1992 Taylor agreed to investigate a number of matters that had been raised by creditors during the meeting. On 15 September 1992 he applied to the Registrar for the examination of the debtor pursuant to s 81 of the Act. The grounds upon which he sought to have the debtor examined, as set out in his affidavit in support of his application, were:
By reason of information I have received and investigations conducted by members of my office I am of the view that it is in the interests of the creditors that there be a public examination of the Respondent/Debtor concerning the following:
(a) his involvement and relationship with Sitcom Pty Ltd;
(b) his involvement and relationship with Group Securities Pty Ltd (formerly Burlock Group Holdings Pty Ltd);
(c) his involvement and relationship with Rushford Heights Pty Ltd;
(d) his involvement and relationship with Dampier Falls Pty Ltd (trading as Golds Australia);
(e) the assets in which he has a proprietary and/or equitable interest.
The Registrar duly summoned the creditor pursuant to s 81(l) to give evidence on 30 September 1992. He was also required to produce certain specified books and documents. At the request of Taylor's solicitors, the Registrar also summoned the secretary of the National Australia Bank to produce documents and give evidence. The applicant gave notice of intention to appear at the examination.
The debtor attended before a Deputy Registrar on 30 September 1992 in answer to the summons. He was represented by counsel as were Taylor and the applicant. The National Australia Bank did not appear in answer to the summons addressed to its secretary but there appears to have been some communication between Taylor's solicitors and the bank which for the time being at least satisfied Taylor's advisers. The debtor was ready and willing to proceed with the examination but counsel for the applicant sought and obtained an adjournment of the examination. The basis of the application for adjournment was that there was already pending in the Court an application to set aside the deed and that it would be more appropriate that the examination of the debtor be delayed until his status was finally determined. In acceding to the motion for adjournment the Deputy Registrar said (in part):
The purpose of the examination would appear to be for the trustee to discover whether there is any reason why he should himself apply to terminate the need or call a meeting of creditors with that aim in mind. It cannot be, in my view, for the purpose of determining whether there are any other assets available for the purpose of the deed because the deed provides for only $50,000 to be paid plus the assignment of the interest in the actions pending. Therefore there can be no discovery of further assets which may be available to the creditors as a result of this examination.
It appears to me also that the trustee has sufficient information at the moment, as the commissioner says, to determine now that he has not had full disclosure and could therefore call a meeting with a view to terminating the deed or seeking the court's order to terminate at this stage. I am somewhat concerned myself as to why the trustee is seeking to pursue this examination at this stage, and I am concerned that there is an application pending before the court which may very well terminate the trustee's involvement in this matter altogether.
I am therefore of the view that this examination should be adjourned at this stage, and in line with the proposals made by the commissioner I would adjourn the examination pending the outcome of the commissioner's application to the court and as I am not in a position to award costs anyway, I reserve the question of costs.
On the day of the proposed examination of the debtor, and after the matter had been adjourned, Taylor sent a circular to the creditors which is set out in full:
30 September, 1992
CIRCULAR TO CREDITORS
Dear Sir/Madam,
Re: ESTATE OF A.D. BURLOCK
NO VX 196 OF 1992
We are writing to advise you of the following events since the meeting of creditors on 5th June, 1992 in respect of the abovenamed.
During the course of that meeting of creditors a number of issues were raised which necessitated further investigation by myself and my staff into the affairs of the abovenamed. In the course of investigation by members of my staff and myself following the meeting of creditors a number of matters have come to our attention.
As a result we pursued those lines of enquiry and then sought legal advice as to the appropriate course of action to adopt. We were advised by senior Counsel after examining the information that it was most appropriate that the abovenamed be examined pursuant to S.81 of the Bankruptcy Act, 1966. We followed this advice and issued an Application and served it upon the abovenamed.
The Creditors were circularised about this development on the 24th September, 1992. Following that we received further information from creditors which caused us to undertake further investigation into the assets held by the abovenamed, his financial affairs and his position vis-a-vis various Companies.
On the 30th September, 1992, the matter was listed for hearing in the Federal Court and on that day Counsel for the Deputy Commissioner of Taxation made an Application to adjourn the examination of the abovenamed pending the outcome of the Application to terminate the Deed of Arrangement. In the circumstances I and my staff have been thwarted in attempting to identify and locate further assets of the abovenamed and bring about a greater return to creditors. I was somewhat surprised of the attitude of the Deputy Commissioner as the adjournment of the examination of the abovenamed effectively means that any further investigation is in limbo pending the hearing in October and any pending appeals from that decision. Naturally there is no guarantee that the Application to terminate the Deed of the abovenamed will be completed by late October. Essentially this means any further examination of the abovenamed cannot proceed until 1993. In view of this I am calling a meeting of creditors for the 19th day of October, 1992 at 11 a.m. At this meeting I propose that the maintenance of the Deed of Arrangement be considered along with the issue of termination. I also propose to table the results of my investigations. In the meantime my staff and myself will continue with our investigations notwithstanding the adjournment of the examination pursuant to S.81. In the meantime, if there are any creditors who have any further information regarding the debtor or any associated entity, I would be grateful if you could provide that to me or a member of my staff prior to the meeting referred to above.
The meeting of creditors was duly convened on 19 October, 1992. Taylor presented a comprehensive report to the meeting. After considerable debate a motion that the deed be terminated was lost. No further meetings have been held.
In June 1993 Taylor ceased to be a registered trustee and by order made on 1 July 1993 the Official Trustee in Bankruptcy was appointed to act as trustee of the debtor's estate under Part X of the Act.
THE EVIDENCE
15. The applicant read a number of affidavits in support of the application, namely affidavits of Mathew Anderson sworn on 5 August 1992, 20 October, 1992, 12 August 1993(2) and 13 August 1993; and of John Lynch sworn 11 August 1993.Anderson is an officer of the Australian Taxation Office and for the most part his affidavits merely exhibit documents which are common to the parties. He attended the meeting of creditors on 19 October 1993 but appears to have taken no active part in it. He was cross-examined by counsel for the debtor in the main in relation to the question of whether the applicant was in fact a creditor for the purpose of the Bankruptcy Act and produced from the relevant file a facsimile transmission received from the Administrative Appeals Tribunal on 28 July 1993, to which reference will be made later.
Lynch is a Senior Assistant Official Receiver in the Bankruptcy District of the State of Victoria. His affidavit exhibits copies of a number of documents extracted from the files received by the Official Trustee from Taylor after the latter's resignation as a registered trustee. The documents in question are common to the parties.
The debtor supported his case with affidavits sworn by the debtor on 11 November 1992 and 11 August 1993; by Paul Andrew Burness sworn 26 July 1993; and by Robert Arthur Kingdon sworn 11 August 1993.
The debtor's affidavits exhibit a number of documents common to the parties. He deposes to the facts which touch upon the issues raised by the application and reference to his testimony will be made later.
Burness is an accountant, apparently in the employ of Taylor's firm, who had the care and conduct of the debtor's estate subject to Taylor's supervision. His affidavit exhibits the minutes of the meeting of 19 October 1992.
Kingdon is a solicitor who acted for the debtor in the claim against GRE Insurance Limited which is referred to in the deed. He deposes to the circumstances relating to the filing of a counter-claim in those proceedings.
None of the deponents of affidavits read in support of the debtor's case was required to attend for cross-examination.
THE APPLICANT'S STANDING
23. I propose to deal initially with the question of the applicant's standing.An application pursuant to s 222(2) or s 222(4) to have a deed of arrangement declared void and an application pursuant to s 236 for an order terminating a deed may be made, inter alia, by a creditor and the present applicant claims standing as such. The debtor denies that the applicant is a creditor for the purposes of the Act. The term creditor is not defined in the Act either generally in s 5(1) or specifically for the purposes of Part X in s 187(l). In Beard v Prestige Baking Industries Pty Ltd 36 ALR 307 Fox J said at 324 that in s 222 the term is used in a wide sense, probably to include any creditor who could prove in bankruptcy. In the same case Lockhart J took a somewhat broader view, suggesting (at 330) that it may be sufficient for the applicant to show he has a prima facie case to be a creditor of the debtor, analogous to the position of an applicant for interlocutory injunctive relief or a debtor seeking to establish, under s 41(7) of the Act, that he has a counter-claim, set-off or cross demand of the kind referred to in s 40(l)(g). Other alternative approaches were also suggested as possibilities. For present purposes, however, it is unnecessary to explore the various alternatives. The applicant claims to have a debt provable in bankruptcy and that is the test which I intend to apply.
In his affidavit sworn 5 August 1992, Anderson dealt in detail with the facts leading up to the first meeting of creditors. He said that on 18 May 1992, that is on the day the debtor signed the authority, he was indebted to the applicant in the sum of $227,209.42. No other details are given concerning the claimed liability. The debtor did not refer to the applicant in his statement of affairs in the parts relating to either unsecured creditors or secured creditors. In Part VII of the statement however, in a paragraph referring to "particulars of my contingent liabilities and any other liabilities not specified in a previous part of this statement" the debtor included the following:
AUSTRALIAN TAXATION OFFICE
ATTN: NEIL LAUNDER
P.O. BOX 12321
A'BECKETT STREET
MELBOURNE VIC 3011
- INCLUDES INCOME TAX 340,000 NIL 340,000 ASSESSMENT FOR $214,144 ISSUED DEF. IN 1989 WHICH IS DISPUTED
(The headings appropriate to the three columns of figures shown in Part VII are:
Gross Liability Est. Value Est. Def/Surp.)
In his report pursuant to s 189A the trustee said of the creditors referred to in Part VII of the statement of affairs:
Mr Burlock has a large number of contingent liabilities which all relate to personal guarantees he has given for his companies except for the last debt to the Australian Taxation Department. This Tax debt relates to estimated personal income tax owing by Mr Burlock for the income tax years 20th June, 1982 to 30 June, 1988 an assessment was issued in 1989 for which payment fell due on the 28th December, 1989. The assessment totalled $214,144.44 and included some provisional tax and penalties. This assessment is disputed. The balance of the amount listed is estimated income tax to date which brings the total estimated tax debt to $340,00.
It is a fair conclusion from the information contained in the debtor's statement of affairs that at the time he signed the statement he regarded himself as liable to the applicant in the sum of $340,000 but that as to part of that sum, namely $214,144, he was in dispute with the applicant.
The minutes of the meeting held on 5 June 1992 record that the Australian Taxation Office (presumably meaning the applicant) was represented at the meeting by its attorney Neil Peter Launder. There was also another person present as an observer on behalf of the Australian Taxation Office. The minutes record that the Australian Taxation Office voted against the special resolution. The minutes do not record the amount for which the Australian Taxation Office was admitted vote. The applicant was represented by Anderson and another officer at the meeting held on 19 October 1992. The record of attendance at that meeting shows the Australian Taxation Office as a creditor for the sum of $238,745.46. The Australian Taxation Office representatives abstained by voting on the motion to terminate the deed.
In his affidavit of 11 August 1992 Anderson said that the records of the Australian Taxation Office show that the sum of $217,376.42 remains due and owing to the applicant by the debtor. Exhibited to the affidavit is a certificate issued pursuant to regulation 67 of the Income Tax Regulations giving particulars of the amount said to be owing by the debtor. I set out below the full text of the certificate:
CERTIFICATE UNDER REGULATION 67 OF THE INCOME TAX REGULATIONS Pursuant to Regulation 67 of the Income Tax Regulations I HEREBY CERTIFY:
(a) That the person named in the Schedule hereto is a taxpayer.
(b) That assessments of income tax were duly made against the said taxpayer in respect of the years specified in the Schedule hereto.
(c) That particulars of the said assessments are as stated in the Schedule hereto.
(d) That notice of the said assessments were duly served upon the said taxpayer on or about the date of issue of the assessments.
(e) That the sum specified in the Schedule hereto was at the date of this certificate due by the said taxpayer to the Commonwealth of Australia in respect of income tax. S C H E D U L E
TAXPAYER: Alan Douglas Burlock
YEARS AND PARTICULARS OF ASSESSMENTS:
Assessment for
year ended
30 June Due Date Amount Balance 1982 28 DEC 1989 2,504.96 2,504.96 1983 28 DEC 1989 60,212.87 62,717.43 1984 28 DEC 1989 43,360.38 106,077.81 1985 28 DEC 1989 8,025.08 114,102.89 1986 28 DEC 1989 24,435.85 138,538.74 1987 28 DEC 1989 1,629.87 140,168.61 1988 28 DEC 1989 3,390.92 143,559.53 1989 23 DEC 1991 15,058.88 158,618.41 Less Credit for:
1988 Instalment amount refundable -1,752.65 Provisional Tax reduction -9,920.00 146,945.76 Additional tax pursuant to Section 207
calculated at the rate or rates
stipulated by that section from time
to time: 70.430.66 TOTAL: 217,376.42 Dated this eleventh day of August 1993
(Sgd.) K.H. Collins Deputy Commissioner of Taxation of the Commonwealth of Australia
Also exhibited to the affidavit are certified copies of the individual assessments particularised in the certificate.
On 15 January 1992 the respondent caused a writ to be issued in the Supreme Court of Victoria against the debtor claiming the sum of $215,089.92 said to be then owing for income tax, provisional tax, medicare levy and additional tax including additional tax for late payment calculated to 14 January 1992. The writ has never been served. On 10 June 1992 the applicant gave instructions that no further proceedings be taken as a result of the debtor entering into the deed.
The debtor's evidence concerning the claimed tax liability is contained in his affidavit of 11 August 1993 of which the following is a summary. The debtor says that he has no outstanding tax liability to the applicant other than a disputed liability in respect of assessments for the tax years 1982-1986 (inclusive), issued on 8 November 1989. An objection to the assessments was lodged by his accountants by letter dated 5 January 1989 (sic, presumably 5 January 1990) which was hand delivered on 17 January 1990. By letter dated 16 December 1991 the applicant notified the debtor that the objection had been considered and disallowed. The applicant's letter indicated that a taxpayer who is dissatisfied with the decision on an objection may lodge with the Commissioner of Taxation either a request to refer the decision to the Administrative Appeals Tribunal (AAT) or a request to refer the decision to the Federal Court. The letter then proceeds to state:
A request made under Section 187 must be in writing and be lodged within 60 days after the issue of this notification. It must be accompanied by a fee of $300.00.
The debtor says that on 3 February 1992 he appealed to the AAT for the review of his assessments and he has exhibited to his affidavit a copy of a letter which is dated 3 February 1992 and is addressed to the AAT. The letter is in the form of an application to have the assessments reviewed by the AAT. It was not accompanied by any fee. The debtor further says that he recently made inquiries of the AAT to ascertain the status of the review and upon inquiry was told that the AAT had no record of his request. He thereafter found out that the correct procedure was for him to have made an application to the respondent.
I do not attach any significance to the variation in the amount of the applicant's claim as between the writ, the regulation 67 certificate and in the minutes of the second meeting of creditors. It is clear in each case there is an underlying claim for tax to which has been added additional tax pursuant to s 207 of the Income Tax Assessment Act. The total amount varies according to the date to which additional tax has been calculated.
In the course of the cross-examination of Anderson a facsimile transmission from the AAT to an officer of the Australian Taxation Office was put in evidence. The fax coversheet, which is dated 28 July 1993, contains the comment "Documents as requested". The documents referred to are a letter from the debtor to the AAT dated 27 July 1993, a copy of the debtor's letter dated 3 February 1992 referred to above and a fax coversheet from the debtor to the AAT dated 28 July 1993 containing the message "Letter enclosed". The terms in which the debtor wrote to the AAT in his letter dated 27 July 1993 are significant and accordingly the full text of the letter is set out below:
July 27, 1993
The Registrar
Administrative Appeals Tribunal
Level 2
451 Little Bourke Street
Melbourne VIC 3000.
Fax: 670 1979
Re: Application to Appeal income tax assessments in February 1992. Dear Sir
In 1990 the Australian Taxation Office (ATO) issued a number of assessments on myself for income tax.
I caused objections to these assessments to be lodged. The ATO advised that they disallowed the objections by letter of 16th Dec 1991.
I sent a letter to the AAT on the 3rd February 1992 (a copy of which is attached), seeking to appeal that decision. And never heard any more about the matter, which did not seem out of the ordinary as most correspondence with the ATO seems to have protracted replies.
Could you please advise me of the status of this appeal. Copies of the other letters referred to, can be provided if you require them.
I await your urgent advice.
Yours sincerely,
Alan Burlock.
There is nothing about this letter which suggests that the debtor had recently made an enquiry from the AAT and had found out that the AAT had no record of his request for review. Indeed, the letter seems to suggest that the debtor regarded the matter as then being current. I am satisfied from the evidence that the first the Australian Taxation Office heard of the letter of 3 February 1992, was when an officer was contacted by the AAT after the latter had received the debtor's fax on 28 July 1993.
Having regard to the terms of the applicant's letter of 16 December 1991 which specifically drew attention to the need to address any request for review to the applicant and for it to be accompanied by a fee of $300, the failure to enclose any fee with the letter of 3 February 1992 and the terms of the debtor's letter dated 27 July 1993 to the AAT, I have grave doubts as to whether the debtor did in fact write to the AAT on 3 February 1992 as claimed.
The affidavit evidence sworn on 11 August 1993 that he had recently made an enquiry of the AAT and found that the AAT had no record of his letter is not credible. Whatever the truth be, the time for seeking a review of the applicant's decision of 16 December 1991 has long since passed and there are no proceedings on foot to have it reviewed.
The effect of regulation 67 of the Income Tax Regulations is that the certificate signed by the Deputy Commissioner dated 11 August 1993 (to which reference is made above) is prima facie evidence of the facts stated in the certificate. No evidence has been adduced to displace the prima facie presumption in favour of the applicant and in the circumstances I conclude that the applicant has a debt which would be provable in bankruptcy and is a creditor of the debtor for the purposes s 222 and s 236 of the Bankruptcy Act. The applicant has standing to bring the application.
RELIEF SOUGHT PURSUANT TO S 222
40. To the extent relevant in these proceedings s 222 of the Bankruptcy Act provides as follows:
222. (1) Where there is a doubt, on a specified ground, whether
.... a deed of arrangement was entered into in accordance with this Part or complies with the requirements of this Part, .... a creditor .... may apply to the Court for an order under subsection (2).
(2) Upon the hearing of an application made under subsection (1), the Court may, subject to this section, make an order:
(a) declaring that the deed .... is void, or that it is not void, on the ground specified in the application; or
(b) declaring that a provision of the deed is void, or is not void, on the ground specified in the application.
(3) The Court shall not make an order declaring a deed to be void on the ground that it does not comply with the requirements of this Part if the deed complies substantially with those requirements.
(4) Where the Court, on the application of .... a creditor, is satisfied that the debtor:
(a) ....
(b) has omitted a material particular from the statement of the debtor's affairs given under subsection 188 (2) or included an incorrect and material particular in that statement;
the Court may make an order declaring the deed .... to be void ....
(5) The Court shall not make an order declaring a deed .... to be void on a ground specified in subsection (4) unless it is satisfied that it would be in the interests of the creditors to do so.
(6) The Court shall not make an order under subsection (2) or
(4) unless the application for the order is made:
(a) ....
(b) in relation to a deed of arrangement - before the terms of the deed have been carried out; or
(c) ....
(7) .... a creditor may include in an application under subsection (1) or (4) an application for a sequestration order against the estate of the debtor and if the Court, on the first-mentioned application, makes an order under subsection (2) or (4)
declaring the deed .... to which it relates to be void, it may, if it
thinks fit, forthwith make the sequestration order sought.
(8) ....
(9) The making of an application .... by a creditor for a sequestration order under this section shall, for the purposes of this Act, be deemed to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of subsection 43 (1), sections 44 and 47, subsections 52 (1) and (2) and Part XIA do not apply in relation to such an application.
(10) ....
(a) The failure of the trustee to state his opinion as required by s 189A.
The scheme of Part X of the Act insofar as it relates to an authority given to a trustee is as follows: The debtor is required to give to the trustee a statement of his affairs and a statement indicating how he proposes that his affairs be dealt with under the part (s 188(2)(c)). Within 10 days of giving the statements referred to the debtor may sign an authority authorising a registered trustee to call a meeting of his creditors and to take over the control of his property (s 188(l)(e); s 188(2)(c)). The authority takes effect upon the trustee consenting in writing to exercise the power conferred by the authority (s 188(2)(a)) and thereupon the debtor's property becomes subject to control under division 2 of Part X (s 189(l)). Within 14 days of consenting to call a meeting of creditors pursuant to the authority the trustee must file in the office of the Registrar copies of his consent, the authority and each statement given under s 188(2)(c) (s 188(4)) and within that period of 14 days the trustee must prepare and file a report in writing that complies with s 189A (s 189A(l)). The report must summarise and comment on the debtor's affairs as disclosed in his statement of affairs and set out such other information relevant to those affairs as is available to the trustee and is necessary to give a true and fair view of those affairs (s 189A(2)). The report must also state whether or not, in the trustee's opinion, it would be in the best interests of the debtor's creditors to deal under Part X with the debtor's affairs in the manner indicated in the debtor's statement indicating how he proposes that his affairs be dealt with (s 189A(3)). The trustee must also prepare a statement in writing containing the prescribed information about each matter that may reasonably be expected to be dealt with or specified in a resolution by the debtor's creditors under s 204 passed at a meeting called under the authority (s 189B). The trustee is required to call a meeting of the debtor's creditors (s 190(l)) which must be held not later than 35 days after the authority is signed by the debtor nor earlier than 14 days after notice of the meeting is given to the creditors (s 194(l)). Notice of the meeting must be given to each person said by the debtor to be a creditor whose business or residential address is known to the trustee (s 194(2)) and such notice must be accompanied by a copy of each statement made by the debtor under s 188(2), the trustee's report required by s 189A and the statement required by s 189B (s 194(2A)). Notice of the meeting must also be advertised in a newspaper circulating in the locality in which the meeting is to be held or as prescribed (s 194(3)). The debtor is required to attend the meeting of creditors unless excused (s 195(l)).
The Act contemplates that the trustee will prepare the report required by s 189A within 14 days of him consenting to act under the debtor's authority. The trustee may have had the debtor's statement of affairs for up to 10 days before the debtor signs the authority and although there is no time specified within which the trustee's consent must be given for the authority to become effective, the fact that the meeting must be held within 35 days of the debtor signing the authority, and the requirement that at least 14 days notice of the meeting must be given means that in practice the s 189A report must be prepared and filed and notice of the meeting given within not more than 21 days from the date of the debtor signing the authority and as this must be within 14 days of the trustee's consent, it follows that the consent must be given within 7 days of the debtor signing the authority. In a case where the debtor has given the trustee his statement of affairs a full 10 days before signing an authority under s 188, the trustee will have a maximum of 31 days within which to prepare and file his report under s 189A and give notice of the meeting.
It would be a reasonable conclusion to draw from the foregoing that the Act contemplates that within the time frame specified, a trustee will be in a position to prepare a report pursuant to s 189A and to state his opinion as required by s 189A(3). Further, it would seem to be clear that the statute places a good deal of importance on the opinion that the trustee is called upon to express. The trustee is by definition a person who is registered as such under the Act and has the professional training, experience and standing to qualify for registration. An important comparison can be made in the case of a solicitor who is authorised under s 188 to call a meeting of creditors. The authority of the solicitor does not extend to taking over control of the debtor's property nor does it require him to prepare a report pursuant to s 189A, and in particular to express an opinion as to whether it would be in the best interests of the creditors to deal under Part X with the debtor's affairs in the manner proposed by the debtor. The creditors are clearly entitled to look to the guidance of a registered trustee who has become a controlling trustee as a result of consenting to exercise the powers conferred by a s 188 authority. The expression by the trustee of the opinion called for by s 189A(3) is in my view an essential ingredient of the whole decision making process contemplated by the Act.
This view, which in my opinion is supported by the general thrust of the provisions to which reference has been made, is consistent with the relevant portions of the Explanatory Memorandum circulated by the Attorney General for the Commonwealth at the time the Act was amended in 1987 to include, inter alia, s 189A. Paragraphs 385, 386, 390 and 391 are as follows:
385 The debtor is not presently required to put a proposal to creditors as to the way in which his or her indebtedness will be dealt with. Nor is the controlling trustee required to express any opinion as to whether, if the debtor's affairs were dealt with in a particular way under Part X, that way of dealing with the debtor's affairs would be in the best interests of creditors. Underthe proposals in this Bill, the debtor will be required to advert to all the possible ways in which an arrangement with creditors could be reached. A limited duty of inquiry will be cast on the controlling trustee to ascertain whether the debtor's proposal is in the best interests of the creditors and the trustee will be obliged to advise creditors accordingly. 386 By reason of the proposed insertion of sections 189A and 189B, creditors will have the advantage of seeing the debtor's statement of affairs and the trustee's report in advance of the first meeting, as these documents will be distributed along with the notice of the meeting. Further, creditors will be advised that they can make special resolutions at the meeting accepting a composition, requiring the debtor to execute a deed of assignment or deed of arrangement, requiring the debtor to present a debtor's petition, or releasing the debtor's property from control. All these amendments are designed to ensure that creditors receive full and timely information about the debtor's affairs in order that the most appropriate course of action available under Part X is pursued.
390 Under proposed subsection 189A(1) a registered trustee will be required, within 14 days after consenting to exercise the powers of a controlling trustee pursuant to a section 188 authority, to prepare and file a report in writing pursuant to the section
391 The trustee's report is to summarise and comment upon the debtor's affairs as disclosed by the statement of affairs and should contain any other information relevant to those affairs which is available to the trustee and which is necessary to give a true and fair view of the debtor's affairs. Under section 188 as amended,a debtor is required to put forward a proposal for dealing with his or her creditors. The trustee's report will be required under subsection 189A(3) to include an expression of opinion by the trustee as to whether the debtor's proposal for dealing with his or her affairs will be in the best interests of the creditors. The trustee, in an administration under Part X is a trustee for the creditors and stands in a fiduciary relationship with the creditors. It is appropriate that the trustee should inform the creditors whether the proposal by the debtor is in the best interests of the creditors.
In his affidavit of 11 November 1992 the debtor says that he first asked Taylor to examine his financial affairs on 17 March 1992 and that between that date and 18 May 1992 he attended Taylor's office on numerous occasions to give information and explanations and to generally assist Taylor's examination. He says he requested Taylor to complete all his investigations prior to the authority being signed. The authority was signed on 18 May 1992 and Taylor endorsed his consent on the same day. The debtor's statement of affairs and his statement pursuant to s 188(2)(c)(ii) are also dated 18 May 1992 as is the trustee's report pursuant to s 189A.
The trustee's report runs into some 12 pages of typing. It is quite comprehensive as would be expected in a case where a debtor's statement of affairs discloses total net liabilities in excess of $2.9m and total contingent liabilities of the order of $70,000,000. At page 10 of the report under the heading "Return to Creditors if the Composition is Accepted" the trustee wrote:
Providing the Statement of Affairs is accurate I anticipate the amount of $52,406 would be available for distribution to unsecured creditors. This allows for the Remuneration of the Trustee and Controlling Trustee and Statutory Fees to be paid to the Registrar in Bankruptcy and miscellaneous disbursement. This amount also includes the approximate amount of $12,406 which may be available from the two claims by Mr Burlock after legal costs are paid. This would result in a return to creditors of approximately 0.54 cents in the dollar. Obviously this may alter depending upon any problems that may be forthcoming during the administration (including a return from the court action currently in progress as aforesaid) and also whether the creditors meeting is adjourned, which would increase the remuneration of the Trustee and Controlling Trustee respectively.
The attention of the creditors is drawn to the fact that I have very recently been instructed by the Debtor and I have not had the opportunity to investigate his affairs. I have assumed at this stage that the Statement of Affairs is correct. However further investigation may disclose discrepancies. Creditors are invited to provide me with their comments in relation to my report or any additional information prior to or at the meeting. I also have not had an opportunity to investigate payments made to creditors during the period of the last six months, however, I am advised by the debtor that he has not paid any debts other than usual living expenses, nor made payments to other entities whether inside or outside the six months period.
If such payments have been made or transactions entered into they could possibly be void under Bankruptcy laws. I assume that no such payments have been made and no transactions entered into and that otherwise the Statement of Affairs is correct. Naturally if investigations consequent upon receipt of further information reveal the contrary, then the debtor's proposal may be subject to termination.
After dealing with the return to creditors in a bankruptcy situation, the trustee concluded his report with the following summary:
On the basis of the foregoing each creditor is invited to consider their position. Whilst the expectant dividend is quite small, the debtor has taken steps to ensure that creditors have the opportunity to avoid further wastage of time and expense by offering a lump sum payment and the monies from the two claims and the releases from 15 creditors. Acceptance of this offer would result in a first and final dividend being paid to creditors within a few months of acceptance of the Deed of Arrangement. The effect of this is that the estate would be finalised in a shorter time period which would keep the costs of the administration to a minimum and therefore enable creditors to obtain an earlier dividend.
As has become evident, large property developers and their creditors have suffered huge losses. Without capital the opportunity for such developers to re-establish themselves and attempt to pay creditors a more significant dividend is simply not possible.
In the circumstances, Mr Burlock is attempting to provide creditors, a return which although quite small does represent a significant hardship upon him as he will be repaying the loan of $50,000 back to relatives over the next 3 years. Accordingly in the circumstances my recommendation or lack of same would carry no real weight and accordingly I invite creditors to carefully peruse the relevant material to assess the position which they wish to adopt. Certainly I do attach significance to the debtors desire to attempt to resolve matters with his creditors to the best of his ability.
There can be no question that the trustee did not state whether or not, in his opinion, it would be in the best interests of the debtor's creditors to deal under Part X with the debtor's affairs in the manner indicated in the statement given under s 188(2)(c)(ii). In fact the trustee not only specifically avoided stating his opinion but on two occasions he qualified his remarks by the assumption that the statement of affairs was accurate and further drew attention to the fact that he had not had the opportunity to investigate the debtor's affairs. In these circumstances it is not surprising that a trustee of integrity would be unwilling to express an opinion and Taylor did no more or less than that. However, the statute required him to state his opinion. The creditors were entitled to have it but they did not receive it. In my opinion the trustee's report was deficient in a most material particular. It cannot be said that the report substantially complied with the statutory requirements in circumstances where perhaps the most crucial part of the report is absent. In my opinion the deed was not entered into in accordance with Part X of the Act and should be declared void on the ground that the trustee failed to state in his report whether or not in his opinion it would be in the best interests of the debtor's creditors to deal under Part X with the debtor's affairs in the manner proposed by the debtor.
(b) The claim that the debtor's statement of affairs contained a false statement.
49. The applicant says that Part VI of the debtor's statement of affairs contained a false statement and on that basis seeks to have the deed declared void pursuant to s 222(4)(b).
In view of the conclusion that I have reached in respect of the matter last dealt with there is no need for this second ground for avoidance to be considered, but as the matter was argued in full, it is appropriate that I deal with it briefly.
Part VI of the statement of affairs deals with debts due to the debtor's estate. The particulars shown in the statement are:
Amount of Debt Amount likely to be received CYNTHIA DAVIS
RE: MOTOR VEHICLE ACCIDENT -
LEGAL ACTION PENDING 1906.00 1906.00 GRE INSURANCE CO
RE: CLAIM FOR CARPET DAMAGE
LEGAL ACTION PENDING 12500.00 12500.00
The grounds upon which the applicant asserts that the debtor made a false statement are set out above in detail.
In his report pursuant to s 189A the trustee said of the two debts owing to the debtor's estate:
Mr Burlock is owed two sums of money. The first is owed by Cynthia Davis and relates to a motor vehicle accident. The amount of $1,906 was determined by the Court as owing to Mr Burlock. This amount will be reduced by legal costs. The second amount is owed by GRE Insurance Company and relates to an insurance claim for carpet damage. This matter will be going to court shortly.
From the evidence I am satisfied that at the time the debtor signed his statement of affairs he was unaware that GRE Insurance had filed a counter-claim or intended to do so. Further, there is no evidence upon which I can infer that the debtor was aware that a counter-claim was likely. I do not regard his statement as to the amount likely to be received as a false statement.
So far as the claim against Ms Davis is concerned, it appears that the debtor was successful in his action and recovered some costs. There is no evidence to suggest that he knew or had reason to believe that the costs due to his own legal advisers would exceed the amount of costs recovered from the other party. In any event the amount involved is comparatively small and in the context of the particular case, I do not think that the failure to make allowance for costs in the statement of affairs could be regarded as a material omission.
In the circumstances I would not have declared the deed void on the basis of ground 2 in the amended application.
RELIEF SOUGHT PURSUANT TO S 236
57. Having already concluded that the deed should be declared void, there is no occasion to consider the alternative relief sought pursuant to s 236 of the Act. However, as the matter has been fully argued I propose to make some brief comments in case it subsequently becomes important.Section 236, so far as is relevant in this application provides:
236. (1) The Court may, upon application by .... a creditor ....if it is satisfied:
(a) that the debtor .... has failed to carry out or comply with a provision of the deed of arrangement;
(b) ....
(c) that for any other reason the deed of arrangement ought to be terminated;
make an order terminating the deed.
(2) The Court shall not make an order terminating a deed on the ground specified in paragraph (1)(a) or (c) unless it is satisfied that it would be in the interests of the creditors to do so.
(3) .... a creditor may include in an application under subsection (1) an application for a sequestration order against the estate of the debtor and, if the Court makes an order on the first-mentioned application terminating the deed of arrangement, it may, if it thinks fit, forthwith make the sequestration order sought.
(4) ....
(5) The making of an application by the trustee or a creditor for a sequestration order under this section shall, for the purposes of this Act, be deemed to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of subsection 43 (l), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply in relation to such an application.
(a) The claimed failure to carry out or comply with a provision of the deed of arrangement.
59. It was a term of the deed that the debtor would obtain releases from 15 named creditors.
In the case of 14 of the creditors, documents in common form headed "Release" have been executed. In the remaining case a document in similar form was signed by the creditor but it is obvious that a line of typing has been omitted so as to make the document quite incomprehensible. The following is a sample of the document signed by the creditors:
R E L E A S E
PARTNERSHIP PACIFIC SECURITIES LIMITED OF 360 COLLINS STREET MELBOURNE.
in the State of Victoria, hereby irrevocably covenant and undertake not to lodge Proof of Debt in the estate of ALAN D BURLOCK until such time as all unsecured creditors have been paid 100 cents in the dollar and until such time when such dividend (if any) will be payable the claim of PARTNERSHIP PACIFIC SECURITIES LIMITED is absolutely deferred.
The applicant says that despite the heading of the document, it is not a release as that term is normally understood. The debtor says that it amounted in fact to a release because there was no way it was possible that the debtor's estate would ever pay a dividend of 100 cents in the dollar.
The debtor says in his affidavit of 11 August 1993 that the form of release was provided to him by an employee of Taylor's firm and that it was prepared in that way so that the creditors who were releasing their claims would still be able to vote at the Part X meeting and subsequent creditors' meetings. He says that all of the relevant creditors signed the releases prior to or at the meeting of 5 June 1992.
In my opinion the document signed by the creditors was not a release as that term would have been understood by the other creditors at the meeting of creditors on 5 June 1992. Indeed, the fact that it was apparently the intention of the debtor and those advising him that there would not be a full release of the creditors' claims in order to preserve their voting rights confirms my view that the documents as signed were not intended to be, and did not operate as, releases of the creditors' respective claims against the debtor.
In my opinion the debtor failed to carry out or comply with a provision of the deed. Had it been necessary to consider whether the deed should be terminated by reason of the debtor's failure to carry out or comply with a term of the deed I would not have made such an order for the reasons first, that the "release" signed by the creditors in fact excluded them from participation in the distribution contemplated by the deed and second, that even if none of the "releasing" creditors had voted at either of the meetings of the creditors, the outcome of the voting would not have been affected. In the circumstances it would not have been in the interests of the creditors to terminate the deed.
(b) Termination of any other ground
65. Particulars of the ground upon which the applicant sought termination pursuant to s 236(l)(c) are set out in detail above.
To the extent that some of the particulars have been dealt with earlier in these reasons, it is inappropriate that they should be relied upon as "any other reason" upon which to terminate the deed. To the extent that the applicant relies upon the magnitude of the debtor's debts and the relatively small dividend contemplated by acceptance of the debtor's proposal, I do not think that those facts taken in isolation constitute a reason to terminate the deed. In my opinion the other particulars supplied by the applicant in respect of this ground are either speculative assertions unsupported by evidence or matters of no relevance in the circumstances of the case. I would not have terminated the deed of any one ground or combination of grounds pleaded in the particulars of ground 4(b) of the amended application.
THE APPLICATION FOR A SEQUESTRATION ORDER:
67. The applicant's application as originally formulated and filed on 15 July 1992 sought the termination of the deed pursuant to s 236 and a sequestration order. No grounds were stated in the application but in the final paragraph of Anderson's affidavit sworn 5 August 1992 and filed in support of the application it is said:
The orders the Applicant seeks are that:
(a) The deed of Arrangement be terminated pursuant to section 236 of the Act.
(i) The relief sought under s.236 of the Act is sought on the grounds that the terms of the Deed of Arrangement are unreasonable in that the proposed pay out of $50,000 allows a payment of only .54 cents in the dollar to the creditors which is small to the point of triviality against the firstnamed Respondent's liabilities.
(ii) The terms of the Composition are not calculated to benefit the creditors generally.
(b) A Sequestration Order be made against the Estate of the firstnamed Respondent
(i) The firstnamed Respondent has committed an act of bankruptcy pursuant to subsection 40(l)(l) of the Act by signing an authority under section 188 of the Act.
(ii) If the Estate of the firstnamed Respondent is sequestrated then proper investigations can be undertaken into the firstnamed Respondent's financial affairs and the relationship between the firstnamed Respondent and the companies in the Group Securities group.
The application was not amended to claim relief pursuant to s 222 until 27 July 1993. On the very narrow grounds originally relied upon, it is likely that the application would have been unsuccessful.
The applicant has however succeeded on one of the grounds added in the amended application and pursuant to s 222(7) the Court has power to make a sequestration order against the estate of the debtor. The statute provides no guidance as to the circumstances in which this power should be exercised and accordingly I take the view that the power is entirely discretionary to be exercised according to the normal principles that apply to the exercise of a judicial discretion.
The facts of each particular case will dictate whether the power to make a sequestration order should be exercised. In some cases it will be obvious that there is no realistic alternative to sequestration but in this case I do not think the choice is that clear.
There does not seem to be any reason on the evidence advanced before the Court to suggest that the process of dealing with the debtor's estate pursuant to Part X has failed for any reason attributable to the debtor's own conduct. The debtor consulted a registered trustee on 17 March 1992; he worked with the trustee for two months before signing the authority pursuant to s 188; no complaint has been made as to the degree of co-operation given to trustee by the debtor in the examination of his affairs particularly in the period preceding the preparation of the trustee's report. It was the trustee's failure to fulfil his responsibility under s 189A(3) which has caused the deed to be held to be void.
Apart from instituting the present proceedings, the applicant took little part in the debtor's affairs prior to and during the meetings of creditors. The applicant issued a writ against the debtor in the Supreme Court of Victoria on 15 January 1992. Attempts were made to effect service over a considerable period but service was never effected. There is some suggestion that the applicant was of the view that the debtor was attempting to avoid service but if that were the case the sensible course would have been to seek an order for substituted service, but this was not done. The applicant attended both meetings but took no part in them except to vote against the debtor's proposal on 5 June 1992. The applicant's representative abstained from voting at the 19 October 1992 meeting.
There is no evidence that any creditor has obtained a judgment against the debtor nor that the debtor has committed any act of bankruptcy other than that constituted by signing the s 188 authority on 18 May 1992. No other creditor has supported the applicant in these proceedings. Although the amount claimed by the applicant is a substantial sum of money, it represents a very minor part of the debtor's total liabilities and although that fact in itself is not determinative of whether a sequestration order should be made, it is one factor of many to be weighed in the balance.
In my opinion this is not an appropriate case for the exercise of the Court's power pursuant to s 222(7) and I decline to make a sequestration order against the debtor's estate.
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